"Peak hype" on New Zealand's offshore oil reserves

There was much hype and hoopla at the recent New Zealand Petroleum Conference about the extent of New Zealand's potential oil and gas reserves. Chris Uruski, a GNS scientist told Chris Laidlaw on Radio NZ's Sunday that we potentially have 20 billion barrels of oil equivalent in New Zealand's offshore exclusive economic zone. He did however put something of a dampener on the excitement by stating "we haven't really got anything sorted on a scientific basis" as to the extent of our oil reserves.


20 billion barrels sounds like one hell of a lot of oil -- but let's put that in perspective.  The world currently uses around 84 million barrels of oil per day. Adding 1 billion barrels to global oil resources would delay the peaking of global oil production by just 4.7 days, according to a comprehensive 200 page study on global oil depletion by the United Kingdom Energy Research Council.  Lets put aside the huge environmental issues. Lets ignore the difficulties of attracting investment in NZ oil exploration in the midst of a global financial crisis -  (Exxon Mobil have just withdrawn from the Great South Basin). Lets be charitable and imagine that more oil is discovered…

Even if New Zealand was to find 20 billion barrels offshore, this would delay the onset of a global peak in oil production by only 94 days -- or just three months. 

Because oil is a globally traded and priced commodity, any oil discovered in the New Zealand would be bought and sold on the international market. New Zealand consumers will continue to pay the world market price, and will suffer if oil shortages and rationing occurs.

So what are the perceived benefits of finding more oil off New Zealand's coast?  Dr. Peter Crabtree of the Ministry of Economic Development in his address to the Petroleum Conference outlined just three benefits -- high wage jobs, profit for New Zealand shareholders and government royalty payments. You will note that increased oil supply security for New Zealand, and insulating New Zealand from higher oil prices, were not included as perceived benefits of finding more oil in New Zealand.

In the event of an oil crisis, a highly unlikely scenario could unfold -- we could follow Venezuela and nationalise the oil industry and subsidise petrol prices. (I have this mischievous picture in my mind of John Key, Gerry Brownlee, and Rodney Hide standing shoulder to shoulder at a press conference to announce the nationalisation of our oil industry) Then we could use emergency powers in the Crown Minerals Act to require that all New Zealand oil will be refined in New Zealand. Problem with this scenario is that at 2009 production rates, if all current domestic supply was required to be refined in New Zealand for domestic consumption only 39% of domestic oil demand could be met. This would leave around 60% of our transport and other oil requirements having to be imported at international prices. So let's forget that fantasy.

The harsh reality is that finding more oil off New Zealand's coast will not make us immune from the coming oil shocks, oil shortages, higher prices and profound and devastating effects on our economy, which a growing consensus of opinion says will be hitting us in less than five years.